The Monetary Authority of Singapore (MAS), Singapore’s central bank CPF , is working to streamline the global economy by changing how money transfers across borders using central bank digital currencies inspired by bitcoin. If successful, the experiment, conducted in collaboration with the Bank for International Settlements (BIS), may lower fees to the point that even the poorest persons could participate in the global economy.
Currently, when a person or entity transfers funds across borders, they rely on a complex network of correspondent banks that coordinate across time zones and currencies. This antiquated network, which includes JP Morgan, Deutsche Bank, and Credit Suisse, now relies on middlemen such as SWIFT for wholesale transactions (money transfers between banks), resulting in limited working hours and settlement delays.
However, if many central banks were physically connected, or if banks could interact instantly on a single network, it would enable 24/7, real-time settlement of cross-border payments. In order to achieve this simplified approach, the MAS collaborated with the BIS in July on a new effort named Project Dunbar, which aimed to create a shared platform where central banks could immediately move cash across borders using central bank digital currencies (CBDCs).
CBDCs are a new type of currency created by central banks on blockchains, comparable to bitcoin, but with limited participation. The BIS, which is made up of over 60 central banks that collaborate on the development of new technologies and economic analyses, is now doing CBDC research at three of its global ‘innovation centres.’ The BIS is working in Switzerland to integrate blockchain technology into existing payment systems; in Hong Kong, a team is experimenting with connecting separate CBDC networks in Asia; and in Singapore, the BIS is moving forward with the creation of a common multiple CBDC (m-CBDC) platform through Dunbar. These projects, if successful, could help connect
While China’s central bank has been working in isolation to create a retail CBDC and improve internal payments infrastructure, the MAS is partnering with the BIS to create a more efficient, cost-effective and accessible cross-border payments system.
According to Andrew McCormack, Center Head for BIS Innovation Hub in Singapore, “Project Dunbar intends to demonstrate the power and viability of a shared CBDC settlement platform.” “A single global settlement platform will be tremendously efficient, just as centralised clearing and settlements have enabled domestic payments to be done rapidly and frequently at no cost to consumers.”
Project Dunbar began informally this summer, but official partners will not be disclosed until September 2, 2021. Dunbar will draw on previous research conducted by the MAS and BIS. Singapore’s central bank performed a simulated cross-border payment and settlement utilising a CBDC on a common network with the Banque de France last month. In the trial, a Singapore Dollar (S$) CBDC was virtually quickly converted to a €uro (EUR) CBDC using Brooklyn-based ConsenSys’ permissioned blockchain Quorum, a fork of ethereum bought from J.P. Morgan in August 2020. J.P. Morgan’s blockchain and payments infrastructure also contributed to the success of the trial.
Singapore already has a sophisticated retail payment system. Singaporeans can send money between one other in seconds via a service called PayNow, which requires only the recipient’s cell phone number. According to Mohanty, Singapore linked this system with a similar one in Thailand called PromptPay in 2018, allowing inhabitants of both countries to transmit payments very instantly between each other for just S$3 for every S$100. In the same manner that PayNow and PromptPay were separate retail payment systems that eventually joined, multiple wholesale CBDC initiatives currently underway at BIS innovation hubs in Singapore, Hong Kong, and Switzerland may have a future.